Korean investors who are interested in opening a company in Malaysia can obtain several tax deductions and other benefits under the double taxation agreement (DTA) signed by the representatives of the two states. The document was signed in April 1982 and it was enforced starting with 1st of January 1983 (and updated in 2011) and it refers to a set of taxes that can be detailed by our team of consultants in company formation in Malaysia.
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Main taxes under the Malaysia-Korea DTA
The tax agreement is applicable to the tax residents of a country who obtain taxable incomes in the other contracting state and it refers to a set of specific taxes as mentioned by the Article 2 of the treaty, which stipulates that both countries are required to apply similar taxes, depending on the national tax law of each state; our team of specialists in company registration in Malaysia can provide advice to Korean businessmen on the tax rules available in this country.
The main taxes that are covered by the DTA in Korea are the income tax, the corporation tax and the inhabitant tax, while in Malaysia, Korean investors and natural persons will need to consider the following taxes: the income tax and the excess profit tax, the supplementary income taxes (represented by the tin profits tax, the development tax and the timber profits tax) and the petroleum income tax.
Which are the main regulations concerning the taxation of business profits?
The treaty provides a set of rules regarding the taxation of business profits obtained by a Korean company operating in Malaysia; this is also applicable to Malaysian companies performing business activities in Korea. As per the Article 7 of the DTA, the taxation of business profits refers to the following:
- as a general rule, the profits of a company are taxed in its country of residence, but the company will be taxed in the other contracting state if it obtains the respective profits through a permanent establishment;
- the profits of a permanent establishment (which can refer to a branch office, a construction site and others) are determined taking into consideration deduction expenses;
- the purchase of goods or merchandise for the permanent establishment is not seen as income or profits;
- the income or profits of a shipping or air transport company will only be taxed in its country or residence (as per Article 8).
The treaty provides regulations on the taxation of dividends (taxed at a rate of 15% or 25%), interests, royalties, capital gains, as well as for the taxation of independent personal services. Businessmen are invited to contact our team of consultants for in-depth assistance on other stipulations of the treaty.